Transocean Ltd. Q2 FY2025 earnings call

• Key Priorities: Intently focused on delivering top-tier services to customers, managing the portfolio of high-spec rigs in a disciplined manner, and enhancing financial flexibility by attaining an efficient cost structure, reducing debt, minimizing interest expense, and simplifying the balance sheet. • Recent Project: Beacon Offshore Energy commenced production from the Shenandoah field, which was drilled by one of Transocean's 20,000 psi drillships, the Deepwater Atlas. • Market Outlook: The active fleet is mostly contracted through the middle of next year, and Transocean is actively pursuing opportunities for the second half of 2026. The global market is expected to tighten by late 2026 and early 2027, with the ultra-deepwater fleet approaching a utilization rate exceeding 90%, which should put upward pressure on day rates. Various regions like Africa, Asia Pacific, U.S. Gulf, Latin America have specific demand projections. • Cost Savings: Transocean plans to sustainably cut cash costs by approximately $100 million each year in 2025 and 2026, mainly from fleet operating and maintenance expenses. Additionally, it aims to reduce costs by around $50 million annually from the shore-based organization starting in 2026, without compromising safety, customer service, or rig reliability.

In the second quarter, Transocean achieved contract drilling revenues of $988 million. Operating and maintenance expense stood at $599 million, and G&A expense was $49 million. Detailed revenue contribution by product segment wasn't explicitly broken down further in the transcript, but these are the key financial figures for the quarter.

• Third Quarter: Contract drilling revenues are expected to be between $1 billion and $1.02 billion. O&M expense is projected to be within the range of $600 million to $620 million. • Full Year 2025: Contract drilling revenues are anticipated to fall between $3.9 billion and $3.95 billion. O&M expense is expected to be $2.375 billion to $2.425 billion. G&A expense is forecasted to be $1.9 billion to $2 billion. Net cash interest expense is estimated to be between $540 million and $545 million. Capital expenditures are expected to be approximately $120 million. Year-end liquidity is consistent with prior guidance, at $14.5 billion to $15.5 billion. • Bond Exchange: Transocean exchanged $157 million of 4% senior exchangeable bonds, with approximately $77 million of the bonds remaining outstanding, and is evaluating options for the remaining convertible instruments.

• Market Volatility: The market is subject to fluctuations, which could impact day rates and utilization. • Contract Risks: There is a risk of contract delays or cancellations, which could affect revenue and cash flow. • Cost Risks: There is a possibility of unexpected cost overruns in operating, general and administrative, or capital expenditures. • Tariff Risks: Uncertainty regarding tariffs exists, although currently, it is not expected to have a material impact on the guidance.

Q: What's your expectation on the trajectory of leading-edge day rates?

A: Utilization needs to reach near the 90% mark, and it may be slightly below that before significant upward pressure on day rates is seen. As contracting continues throughout the year, rates are expected to improve. Transocean will strategically consider term, location, and customer to drive the best value from its unique fleet.

Q: What are the potential proceeds from rigs slated for disposal?

A: A nominal amount is included in the liquidity forecast. Generally, when rigs are recycled, it's roughly a cash breakeven situation, around $8 million to $12 million per asset. If disposed to alternative functions, the amount could be higher, but it will be announced when it happens.

Q: What are Transocean's views on its involvement in deep sea mining (Olympia)?

A: Transocean is still involved. It is pursuing technical solutions for deep sea mining, and the asset in the JV provides optionality. However, the company is mainly focused on its core drilling business.

Q: What are your thoughts on spot activity and the makeup of the market?

A: There are several spot jobs. For example, there are extensions of contracts in Brazil and Ivory Coast, including add-in wells in mature basins. There are also several tenders in West Africa, with 6-month opportunities, which is a win-win for contractors and operators.

Q: Is the slower couple of quarters typical of the service driller business cycle?

A: It is not a typical conventional cyclical activity in the business. Rates are solid but lower than in the past couple of years due to some white space. Reserves and investment lead times are long, and projections indicate that the FID process will resume with positive indicators for growth.